Navigating supplier pressure: what you need to know 11 min read
The ongoing conflict involving Iran has sent shockwaves through global energy markets, driving up fuel costs at a pace that is placing enormous strain on supply chains across virtually every sector.
As suppliers face mounting input and transportation costs, many will look to their contracts for mechanisms to protect their margins. Customers should expect to receive notices, requests and demands invoking a range of contractual rights. Understanding what those rights actually permit, and where suppliers may be overreaching, is critical.
This Insight examines five key mechanisms that suppliers are most likely to seek to rely upon:
- price resets and contract variations
- governance rights
- threatened non-performance and breach
- termination for convenience
- force majeure.
For each, we set out the key legal considerations and practical steps customers should take now, and what to do if a potential breach appears likely.
Contract price resets, renegotiations and variations
The first port of call for any supplier facing increased costs will be the pricing provisions of their contract. The starting point is always the express terms: does the contract contain a fuel surcharge, an index-linked pricing mechanism or a cost pass-through clause? If so, what triggers are required (eg a specified percentage increase in an agreed index) and have those triggers actually been met?
Some longer-term contracts include price reopener clauses, which give either party the right to initiate a renegotiation of pricing at defined intervals or upon the occurrence of specified events. Where such clauses exist, customers should pay close attention to the procedural requirements: notice periods, negotiation windows and escalation procedures must all be followed strictly, and failure by a supplier to comply with these steps may mean the clause cannot validly be invoked.
Where no such express clause is found in the contract, a party may assert an implied right under the contract to renegotiate price. The threshold to imply a right into a contract is well-established and demanding: it must be necessary to give business efficacy to the contract, so obvious it goes without saying, reasonable and equitable, capable of clear expression and not contradictory of any express term. Although it will depend on the contract in question, a right to renegotiate price where performance has become more expensive is unlikely to satisfy this test. And a supplier who demands a price increase without contractual authority to do so is simply making a request, not asserting a right, and customers are under no obligation to agree.
Notwithstanding the above, the legal position and the commercial reality do not always align. Even where a supplier has no contractual entitlement to a price increase, customers may find that refusing risks damaging a critical supply relationship, incentivising poor performance or—in some cases—even precipitating a supplier insolvency that causes greater disruption than a price increase. A clear-eyed assessment of commercial leverage and supply chain risk should therefore sit alongside any legal analysis.
Customers should also be alert to the formalities required for any variation. Many commercial contracts contain 'no oral modification' clauses, which, while not strictly preventing oral variation, will be highly relevant as evidence of the parties' intentions. This highlights the importance of complying with the contract's requirements when it comes to agreeing price change variations.
Finally, customers should be alert to the evolving regulatory landscape and how that may affect their risk exposure. For example, the Fair Work Commission has issued an Order regarding fuel cost recovery for delivery and transport work, which took effect on 21 April 2026. The order requires businesses to adjust the rate or amount they pay for delivery and transport work to cover the increased cost of fuel arising out of the ongoing conflict in the Middle East. Any business that pays (directly or indirectly) for the delivery or transport by road of goods, waste or passengers may be caught by the order.
Practical steps:
- Proactively review pricing provisions in key supplier contracts rather than waiting to be approached.
- Pay close attention to the formal requirements for variation under the contract.
Governance rights
Beyond pricing, many commercial contracts (particularly long-term service agreements and outsourcing arrangements) contain detailed governance frameworks. In the context of a fuel crisis, these provisions can be a powerful tool for customers.
Reporting and audit rights deserve particular attention. Contracts may entitle customers to require suppliers to provide evidence of their cost base, and where a supplier is claiming that costs have risen, customers can legitimately request supporting documentation. This is not only a useful negotiating lever, but it also enables customers to assess whether a supplier's claims are well-founded before deciding how to respond.
Benchmarking provisions, where present, allow pricing to be tested against market comparators. Given the volatility in the current market, customers should consider whether triggering a benchmarking review is appropriate, particularly where long-term fixed pricing may now be out of step with the market in the supplier's favour.
Governance frameworks may also impose obligations on suppliers to notify customers of material changes in their financial position. Customers should be actively monitoring whether suppliers are complying with these obligations and should be alert to signs of financial distress that could indicate a risk of non-performance.
Finally, customers should review whether their contracts include step-in rights—provisions that allow the customer to assume operational control, or to appoint a replacement supplier, in the event that the incumbent supplier fails to perform. These rights can be invaluable in a crisis situation, assuming the service can in fact be performed in-house or by an alternative service provider in a more optimal way.
Practical steps:
- Convene formal governance meetings with key suppliers to put the relationship on a structured footing.
- Exercise audit and reporting rights proactively. Carefully consider possible implications before undertaking benchmarking. Document all communications carefully.
- If a supplier is pressing for a price increase, consider requesting that it substantiate the cost increase with evidence before any concession is made (including that increasing costs are being appropriately apportioned across the supplier's customer base).
Threatened non-performance and breach
Where a supplier indicates (whether expressly or through its conduct) that it will not or cannot perform its contractual obligations, the legal consequences will depend on the nature of the relevant obligation and the severity of the breach.
Not every failure or threatened failure entitles a customer to terminate. A breach of a non-essential term may sound only in damages, whilst the right to terminate will depend on whether the term breached is a condition, or whether the consequences of the breach are sufficiently serious to deprive the customer of substantially the whole benefit of the contract.
Where a supplier evinces a clear and unequivocal unwillingness or inability to perform the contract as a whole, or a fundamental obligation under it, this may amount to repudiation or anticipatory breach, entitling the customer to accept the repudiation, treat the contract as discharged and pursue damages. Customers should, however, be cautious about taking this step: acting incorrectly in purporting to accept a repudiation can expose the customer to liability.
Short of termination, customers may also have recourse to step-in rights (as discussed above), injunctive relief or the right to engage a replacement supplier and recover the cost differential as damages.
The commercial dimension in the face of threatened non-performance is equally important. Even where a customer has a clear legal entitlement to terminate, doing so may not always be the right commercial decision, particularly where the supplier is critical to operations and an alternative cannot be stood up quickly. In many cases, the better immediate response may be to put the supplier on formal notice of its obligations, reserve all legal rights and engage in dialogue to understand the true extent of risk to performance.
Practical steps:
- Where a supplier signals an inability or unwillingness to perform, respond promptly in writing, make clear that the customer does not accept any departure from the supplier's contractual performance, and expressly reserve all rights.
- Do not purport to terminate or accept a repudiation without seeking legal advice.
- Begin contingency planning: identify alternative suppliers, assess step-in rights and understand the transition-out provisions available under the contract.
Termination for convenience
Termination for convenience (TfC) clauses allow a party to bring a contract to an end without cause. While it is generally not in a supplier's interest to terminate a revenue-generating contract, in a deteriorating market, suppliers may seek to use these provisions either as genuine exit routes from unprofitable contracts or as leverage in price renegotiations.
Where a supplier serves a TfC notice under an express TfC right, customers should take a number of immediate steps. First, verify that the notice strictly complies with the terms of the contract (eg does the TfC clause in fact operate in the supplier's favour? Has the notice been given in line with the contractual notice period? Have all procedural requirements of the notice been met?). If the supplier has failed to comply with procedural requirements under the contract, customers should promptly notify the supplier of any defect, object to any reliance on the non-compliant notice and expressly reserve all rights. It should be borne in mind, however, that procedural non-compliance alone is unlikely to amount to wrongful termination or repudiation.
Second, customers should identify what compensation the contract provides for on a TfC termination. Many contracts require the terminating party to compensate the other for stranded costs. Where it is the supplier terminating, the customer should understand whether any such payment flows in its favour.
Third, many critical supply agreements will include transition-out or exit provisions. Customers should review what transition-out support they are entitled to and prepare a plan for standing up an alternative supply solution during this window.
Practical steps:
- Identify alternative or backup suppliers now, ahead of any formal TfC notice, given current market conditions.
- Where a supplier is using a TfC notice as leverage, consider whether a negotiated standstill arrangement is achievable to allow time for transition or renegotiation.
Force majeure
Force majeure has the potential to be a commonly invoked—and contested—mechanism in the current environment. It is also frequently misunderstood.
There is no freestanding doctrine of force majeure in Australia and no implied force majeure term that applies to contracts generally. Where a contract contains an express force majeure clause, the precise circumstances in which it can be invoked will depend on the wording of the particular clause. Generally speaking, however, a supplier seeking to rely on a force majeure clause in the context of the current crisis will need to demonstrate three things:
- The event falls within the clause: common formulations cover 'acts of war', 'government action', 'sanctions', 'shortage of fuel or materials' and similar categories. Whether the Iran conflict and its downstream effects on fuel supply fall within the clause will depend on its precise drafting. Broad 'catch-all' wording (eg 'any other event beyond the reasonable control of the party') may assist suppliers, but courts will still scrutinise the causal chain carefully.
- The event was beyond the party's reasonable control: suppliers cannot invoke force majeure where the event was foreseeable at the time of contracting, or where they contributed to the circumstances giving rise to the issue.
- The event caused the inability to perform: this is the critical point. Mere increased cost of performance will usually not constitute a force majeure event. Subject to any specific drafting in the force majeure clause, increased cost or difficulty of performance, commercial impracticability or undesirability will not be sufficient. Generally, the supervening event must make performance impossible, not merely more onerous or difficult.
Of course, there must also be a causal connection between the relevant event and the inability to perform. For example, a supplier's claim might be contestable where impediments to performance could have been reasonably overcome, including by finding alternative subcontractors, or if it otherwise fails to take reasonable steps to mitigate the effects of the event.
Given that a force majeure clause can significantly affect a party's rights, such clauses are often construed strictly, including any mechanical elements such as requirements to give notice 'immediately' or 'without delay'.
Where a valid force majeure event is established, the consequences will depend on the contract in question, but typically involve suspension of the affected obligations for the duration of the event, with no liability for non-performance during that period and a right to terminate if the event persists beyond a specified period. It will not, absent express wording, entitle the supplier to additional payment.
Customers should be alert to suppliers seeking to conflate force majeure with commercial hardship. These are distinct concepts and the latter does not give rise to any legal excuse under Australian law. The doctrine of frustration—which operates at common law to discharge a contract where a supervening event confounds a common assumption of both parties such that performance has become radically different from that which was contracted for—may occasionally be relevant, but the bar is high and courts have held that mere increased cost, hardship or inconvenience will not suffice.
Practical steps:
- Scrutinise any force majeure notice carefully against the specific contractual wording. There is no implied force majeure concept in Australia (but the position may be different in contracts governed by foreign law).
- Require suppliers to evidence both the qualifying event and the direct causal link to their inability to perform.
- Challenge any notice that conflates increased cost with genuine impossibility of performance.
Steps you can take now
The fuel crisis creates a genuinely challenging environment for businesses across all sectors.
Suppliers are under real commercial pressure and many will look to their contracts for relief. However, the legal position is clear: contractual rights must be exercised strictly in accordance with their terms, and the law provides no general safety valve for commercial hardship.
Customers who understand their contractual position, exercise their own rights proactively and respond robustly and commercially to supplier claims will be best placed to navigate the disruption ahead.
In this respect, and regardless of the specific mechanism a supplier may seek to invoke, there are a number of steps organisations can be taking now:
- Conduct an urgent contract audit across key supplier relationships. Identify which contractual mechanisms are available, to whom and under what conditions. The specific drafting of each clause will be determinative.
- Maintain comprehensive records. Document all supplier communications, notices, meetings and requests in writing. This will be essential if any dispute escalates.
- Do not agree to ad-hoc variations without proper legal review and a formal written amendment. Even well-intentioned informal agreements can create uncertainty and unintended consequences.
- Assess supply chain resilience Identify alternative or backup suppliers across critical supply lines before the situation deteriorates further.
- Consider proactive engagement. In some cases, a negotiated solution (eg a temporary price adjustment in exchange for a contract extension or enhanced commitments) may be commercially preferable to a protracted dispute or supplier insolvency. However, any such agreement should be documented formally and with appropriate legal input.
- Review your insurance position. Business interruption and supply chain disruption policies may provide relevant coverage. Insurers should be notified promptly if a claim may arise.